The loan lending business is thriving, as marketing and advertising campaigns flood the web and television, presenting consumers with borrowing options that they may have previously thought nonexistent. Yet, many consumers are still unclear about what exactly payday loans are and how they differ from cash advances. The terminology surrounding these loans doesn't always help; very often, the terms are frequently used interchangeably, as synonyms, although the two services entail some significant differences. This can confuse a consumer who is browsing online lender sites in hopes of finding a reputable financial institution to meet their borrowing needs, as very often loan lending sites denounce the value of cash advances while credit card sites discredit the payday loan industry.
A consumer who is under the impression that the two services are mutually inclusive might feel that such claims discredit the lending company because it appears, to the consumer, that the lender is criticizing the validity of the services they are supposed to be providing. Understandably, this could lead unsure borrowers away from such lenders and into the arms of a competing business.
While this article will not likely change the way these terms are used, it may help clarify the differences between these two services to better inform consumers who are seeking a personal loan, allowing them the opportunity to better judge the businesses they are dealing with.
Online and in store payday loans are unsecured advances that generally do not require collateral or a credit check for approval. Rather, these loans are granted based on income, which must be proven through banking records. These loans come in two forms: online and store front. The online loan is directly deposited into the borrower's bank account and repayment is retracted on the scheduled due date. Store front loans require a post-dated check in the full amount of the loan.
Furthermore, these loans require an individual to be employed and steadily paid because they are intended for short term use and suppose to be paid off with the borrower's next paycheck. Distributed in small amounts ranging from 100 to 1500 dollars, these loans are solely contingent on income, thereby relieving the borrower the worry of enduring a credit check.
In contrast, cash advances are secured through one's credit card company and comes with an entirely different set of rules and regulations. Rather than being based on income, these advances are based on one's credit limit. However, for cash withdraws on a credit card, the limit may be significantly lower than the actual credit limit. The repayment policy for these advances is virtually the same as your normal arrangement with your credit card company; you make monthly payments with a set 'minimum' until the balance is paid off.
However, these advances differ from regular credit purchases in one significant way: interest and fees. Transaction fees and APRs for these advances can be steep, thus they generally end up costing more than a regular purchase. On the plus side, the repayment option for these advances is more flexible that there payday loan advance counterpart, allowing repayment over a longer period of time, if you can afford the interest, that is. Furthermore, a credit advance does require credit history, as an individual must already have a credit card with an available balance to borrow from this source.
While neither option is all good or all bad, they are not the same. Knowing the difference may help a potential borrower make a better choice for their financial needs.